key takeaways
- Bloomberg reported that the SEC is investigating Coinbase to determine whether it allows customers to trade unregistered securities.
- The update follows the SEC’s claim that Coinbase listed “at least nine” securities as part of an insider trading scam involving a former employee.
- Coinbase has denied that it lists securities and asked the SEC to reconsider how it determines that an instrument is not a security.
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Coinbase urged the US financial regulator to reconsider how it classifies securities in response to a court filing last week.
Coinbase reportedly facing SEC investigation
The Securities and Exchange Commission has reportedly launched yet another attack on the cryptocurrency industry.
The US financial regulator has launched an investigation into whether Coinbase allows its customers to trade cryptocurrency tokens that should have been registered as securities, bloomberg The report has been given quoting three people familiar with the matter.
This comes days after the SEC and the Justice Department jointly charged a former Coinbase employee and two of his associates with insider trading. The SEC said in a court filing that Coinbase has listed “at least nine” crypto assets that can be classified as securities, following repeated warnings by agency chairman Gary Gensler over the past year. has echoed.
according to bloomberg According to the report, the SEC is keeping a close eye on Coinbase as it begins offering a wide range of crypto tokens for trading. The sources asked to maintain their anonymity as the investigation has not been announced publicly.
The allegations of insider trading deal another blow to Coinbase, which has faced ongoing criticism from the industry over its questionable asset listing process. Prominent crypto figures such as Kobi have in the past ridiculed Coinbase’s choice of backed assets, while others have called for the sacking of the staff responsible for handling its listings following the SEC’s update.
The exchange denies it lists the securities.
Coinbase has repeatedly defended its actions, publishing a new blog post last week denying that any assets listed on the exchange can be classified as securities. On July 21, Paul Grewal, the company’s chief legal officer, wrote a post titled “Coinbase does not list securities.” End of story.” The firm published a separate blog post the same day, urging the SEC to reconsider how it considers whether an asset can qualify as a security. The Post argued that the current The US securities law is “not appropriate to regulate digital assets” and includes a link to a petition that Coinbase sent to the SEC asking them to establish new rules for the crypto securities market.
The SEC currently decides on whether property can be classified as a security based on the Howe test, a decision established by the U.S. Supreme Court in a 1946 case. The Howe Test refers to the Act of 1933 and evaluates whether market participants have purchased an instrument (such as a crypto token) with the expectation of profit based on the efforts of a third party.
Under the SEC’s view, if an investor can purchase a crypto token with the expectation of profit based on the work of a central team, for example, that token could potentially be classified as a security based on the Howe test. Is.
US regulators have been paying more attention to the crypto space in recent months due to Terra’s explosion and a washout in the wider industry. The cryptocurrency has fallen from a market cap of over $3 trillion in November 2021 to just over $1 trillion today, raising concerns about whether retail investors are safe enough.
Coinbase stock took a hit in pre-market trading following the SEC investigation revelations. COIN is down 5.3% at press time, combined with the rest of the market it has suffered since its launch in April 2021. At its current trading price of $67, it is down more than 80% from its all-time high, meaning it has slipped even more from its peak than embattled crypto mainstays Bitcoin and Ethereum.
Disclosure: At the time of writing, the author of this article owns ETH and several other cryptocurrencies.